Amazon.com countersues Wal-Mart

Amazon.com Inc. lashed back at Wal-Mart Stores Inc., filing a countersuit that escalates a long-running battle between the leading online retailer and the biggest U.S. operator of traditional stores.

Wal-Mart (NYSE:WMT) last year sued Amazon (Nasdaq:AMZN), accusing it of improperly recruiting Wal-Mart employees and misappropriating their proprietary knowledge. Amazon's chief information officer, Richard Dalzell, is a former Wal-Mart executive. He is one of 15 former Wal-Mart employees now working for Seattle-based Amazon or Drugstore.com Inc., a Seattle company in which Amazon owns a 40% fully diluted stake. The suit originally was filed in Arkansas state court; it since has been moved to Washington state court.

Most of Amazon's countersuit is a factual response to the Wal-Mart charges. But the 25-page filing in Washington state court is sprinkled with outright taunting of the giant Bentonville, Ark., retailer. At one point in its suit, Amazon declares that "Wal-Mart has suffered employee morale and labor problems for the last few years and there are several Web sites dedicated to the problem."

Amazon also accuses Wal-Mart of filing its original suit in an attempt to prevent other Wal-Mart employees from leaving, and to buy more time to develop Wal-Mart's "own faltering online offering." Amazon is asking the court to dismiss Wal-Mart's original suit and award damages if Wal-Mart's actions are found to be injurious to Amazon.

Told of Amazon's response, a Wal-Mart spokesman said: "You've got to be kidding." She reiterated Wal-Mart's belief that Amazon's recruiting was an effort to gain "very specific, detailed knowledge about key aspects of our business."

Only chose 10 percent
Amazon said in its countersuit that it had made job offers to only about 10% of the Wal-Mart employees who approached the Seattle company. That would suggest that 150 Wal-Mart employees were in contact with Amazon. The Wal-Mart spokeswoman didn't dispute that figure but said she believed that most job talks were initiated by Amazon.

Amazon disclosed the countersuit in its latest 10-K filing with the U.S. Securities and Exchange Commission. In that filing, Amazon also provided a few fresh details about its basic business of selling books, music and videos online. The company asserted that it became the No. 1 online seller of videos in the fourth quarter of 1998. Amazon also said it got 40% of its books last year from Ingram Books, a distributor that previously had provided more than half its stock.

Amazon also indicated that its big cash reserves aren't all marking time in money-market investments. The company said its $346 million investment portfolio as of Dec. 31 included $9.8 million in equities -- for which unrealized gains equal 21% of the holdings' original cost. A spokesman declined to say what shares Amazon is buying, or whether it might play the stock market more actively in the future.